1. CORPORATE INFORMATION
Adhunik Metaliks Limited (the Company) is a public limited company
domiciled in India and incorporated under the provisions of the
Companies Act, 1956. Its equity shares are listed on stock exchanges in
India. The Company is primarily engaged in the manufacture and sale of
steel, both alloy & non alloy.
A) Basis of Preparation
The financial statements of the company have been prepared in
accordance with the generally accepted accounting principles in India
(Indian GAAP). The company has prepared these financial statements to
comply in all material respects with the accounting standards notified
under section 133 of the Companies Act, 2013 read together with
paragraph 7 of the Companies (Accounts) Rules 2014. The financial
statements have been prepared on an accrual basis and under the
historical cost convention, except in case of fixed assets for which
revaluation is carried out. Further, insurance & other claims, on the
ground of prudence or uncertainty in realization, are accounted for as
and when accepted / received. The accounting policies adopted in the
preparation of financial statements are consistent with those of
previous year, except for the change in accounting policy explained
below.
Change in accounting policy
Depreciation on fixed assets:
Till the year ended June 30, 2014, Schedule XIV to the Companies Act,
1956, prescribed requirements concerning depreciation of fixed assets.
From the current year, Schedule XIV has been replaced by Schedule II to
the Companies Act, 2013. The applicability of Schedule II has resulted
in the following changes related to depreciation of fixed assets.
Unless stated otherwise, the impact mentioned for the current year is
likely to hold good for future years also.
(a) Useful life/ depreciation rates
Till the year ended June 30, 2014, depreciation rates prescribed under
Schedule XIV were treated as minimum rates and the company was not
allowed to charge depreciation at lower rates even if such lower rates
were justified by the estimated useful life of the asset. Schedule II
to the Companies Act, 2013 prescribes useful life for fixed assets
which, in many cases, are different from life prescribed under the
erstwhile Schedule XIV. However, Schedule II allows companies to use
higher/ lower useful life and residual values if such useful life and
residual values can be technically supported and justification for
difference is disclosed in the financial statements.
Considering the applicability of Schedule II, the management has
re-estimated useful life and residual values of all its fixed assets.
The management believes that depreciation rates currently used fairly
reflect its estimate of the useful life and residual values of fixed
assets, though these rates in certain cases are different from life
prescribed under Schedule II.
Had the company continued its earlier policy of charging depreciation
based on earlier useful life / life determined by Schedule XIV of the
Companies Act, 1956 rates as the case may be, loss for the current year
would have been higher by Rs, 1,206.03 lacs.
b) Depreciation on assets costing less than Rs, 5,000/-:
Till year ended June 30, 2014, to comply with the requirements of
Schedule XIV to the Companies Act, 1956, the company was charging 100%
depreciation on assets costing less than Rs, 5,000/- in the year of
purchase.
However, Schedule II to the Companies Act 2013, applicable from the
current year, does not recognize such practice. Hence, to comply with
the requirement of Schedule II to the Companies Act, 2013, the company
has changed its accounting policy for depreciation of assets costing
less than Rs, 5,000/-. As per the revised policy, the company is
depreciating such assets over their useful life as assessed by the
management. The management has decided to apply the revised accounting
policy prospectively from accounting periods commencing on or after
July 1, 2014.
The change in accounting for depreciation of assets costing less than
Rs, 5,000/- did not have any material impact on financial statements of
the company for the current year.
B) Use of Estimates
The preparation of financial statements in conformity with Indian GAAP
requires the management to make judgments, estimates and assumptions
that affect the reported amounts of revenues, expenses, assets and
liabilities and the disclosure of contingent liabilities, at the end of
the reporting period and the results from operations during the
reporting period. Although these estimates are based on the managements
best knowledge of current events and actions, uncertainty about these
assumptions and estimates could result in the outcomes requiring a
material adjustment to the carrying amounts of assets or liabilities in
future periods.
C) Tangible Fixed Assets
(i) Tangible Fixed Assets are stated at cost (or revalued amount, as
the case may be), less accumulated depreciation and impairment, if any.
The cost of acquisition comprises of purchase price inclusive of duties
(net of CENVAT / VAT), taxes, incidental expenses,
erection/commissioning expenses/trial run expenses and borrowing cost,
etc. up to the date the asset are ready for intended use. In case of
revaluation of tangible fixed assets, the cost as assessed by the
approved values is considered in the accounts and the differential
amount is credited to revaluation reserve.
The carrying amounts of assets are reviewed at each balance sheet date
to determine if there is any indication of impairment based on external
/ internal factors. An impairment loss is recognized wherever the
carrying amount of an asset exceeds its recoverable amount which
represents the greater of the net selling price of assets and their
''Value in use''. The estimated future cash flows are discounted to their
present value using pre tax discount rates and risks specific to the
asset.
(ii) Machinery spares which can be used only in connection with an item
of fixed assets and whose use as per technical assessment is expected
to be irregular, are capitalized and depreciated over the residual
useful life of the respective assets.
(iii) Expenditure on new projects and substantial expansion:
Expenditure directly relating to construction activity are capitalized.
Indirect expenditure incurred during construction period are
capitalized as part of the indirect construction cost to the extent to
which the expenditure are related to construction activity or are
incidental thereto. Other indirect expenditure (including borrowing
costs) incurred during the construction period which are not related to
the construction activity nor are incidental thereto, are charged to
the Statement of Profit and Loss. Income earned during construction
period is deducted from the total of the indirect expenditure.
D) Intangibles
(i) Acquired computer software''s and licenses are capitalized on the
basis of costs incurred to bring the specific intangibles to its
intended use. These costs are amortized on a straight line basis over
their estimated useful life of three years.
(ii) Net Present Value paid to the various State Governments for
restoration of forest as a pre-condition of granting license for mining
in non-broken forest area (Mining Rights) are capitalized and amortized
prospectively on a straight line basis over the remaining lease period.
E) Depreciation
(i) Depreciation is provided prorata basis on straight line method at
the rates determined based on estimated useful life of tangible assets
where applicable, specified in Schedule II to the Act.
(ii) Leasehold Land is amortized over the tenure of respective leases.
(iii) Mining lease and Development is amortized over the tenure of
lease or estimated useful life of the mine, whichever is shorter.
(iv) Intangible assets (computer software''s) are amortized on
straight-line method at the rates determined based on estimated useful
life which vary from 2 years to 5 years.
F) Foreign Currency Transactions
i) Initial Recognition
Foreign currency transactions are recorded in the reporting currency by
applying to the foreign currency amount the exchange rate between the
reporting currency and the foreign currency at the date of the
transaction.
ii) Conversion
Foreign currency monetary items are reported using the exchange rate
prevailing at the reporting date. Non-monetary items, which are
measured in terms of historical cost denominated in a foreign currency,
are reported using the exchange rate at the date of the transaction.
Non-monetary items, which are measured at fair value or other similar
valuation denominated in a foreign currency, are reported using the
exchange rate at the date when such value was determined.
iii) Exchange Differences
Exchange differences arising on the settlement of monetary items or on
reporting of such monetary items at rates different from those at which
they were initially recorded during the year or reported in previous
financial statements are recognized as income or as expenses in the
year in which they arise.
iv) Forward Exchange Contracts not intended for trading or speculation
purposes
The premium or discount arising at the inception of forward exchange
contracts is amortized as expense or income over the life of the
contract. Exchange differences on such contracts are recognized in the
statement of profit and loss in the year in which the exchange rates
change. Any profit or loss arising on cancellation or renewal of
forward exchange contract is recognized as income or as expense for the
year.
G) Investments
Investments that are readily realizable and intended to be held for not
more than a year are classified as current investments. All other
investments are classified as long-term investments. Current
investments are carried at lower of cost and fair value determined on
an individual investment basis. Long-term investments are carried at
cost. However, provision for diminution in value is made to recognize a
decline ''other than temporary'' in the value of the investments.
H) Inventories
(i) Raw materials, stores and spares and trading goods are valued at
lower of cost computed on moving weighted average basis and net
realizable value. However, materials and other items held for use in
the production of inventories are not written down below cost if the
finished products in which they will be incorporated are expected to be
sold at or above cost.
(ii) Finished goods, work in progress and by products are valued at the
lower of cost computed on weighted average basis and net realizable
value. Cost includes direct materials and labor and a part of
manufacturing overheads based on normal operating capacity. Cost of
finished goods includes excise duty.
(iii) The Closing stock of materials inter-transferred from one unit to
another is valued at cost of the transferor unit or net realizable
value, whichever is lower.
(iv) Net realizable value mentioned above is the estimated selling
price in the ordinary course of business less estimated costs of
completion and estimated cost necessary to make the sale.
I) Borrowing Costs
Borrowing costs relating to the acquisition / construction of
qualifying assets are capitalized until the time all substantial
activities necessary to prepare the qualifying assets for their
intended use are complete. A qualifying asset is one that necessarily
takes substantial period of time to get ready for its intended use. All
other borrowing costs are charged to revenue.
J) Excise Duty and Custom Duty
Excise duty is accounted for at the point of manufacture of goods and
accordingly is considered for valuation of finished goods stock lying
in the factories as on the balance sheet date. Similarly, customs duty
on imported materials in transit / lying in bonded warehouse is
accounted for at the time of import / bonding of materials.
K) Earnings Per Share
Basic earnings per share is calculated by dividing the net profit or
loss for the year attributable to equity shareholders by the weighted
average number of equity shares outstanding during the year.
For the purpose of calculating diluted earnings per share, the net
profit or loss for the year attributable to equity shareholders and the
weighted average number of shares outstanding during the year are
adjusted for the effects of all dilutive potential equity shares.
L) Revenue Recognition
Revenue is recognized to the extent that it is probable that the
economic benefits will flow to the Company and the revenue can be
reliably measured.
Sale of Goods
Revenue from sale of goods is recognized when all the significant risks
and rewards of ownership of the goods have passed to the buyer, which
generally coincides with delivery. Sales are net of returns, claims,
trade discounts, Sales Tax and VAT etc. Export turnover includes
related export benefits.
Sale of Services
Revenue is recognized when it is earned and no significant uncertainty
exists as to its realization or collection.
Interest Income
Interest income is recognized on a time proportion basis taking into
account the amount outstanding and the applicable interest rate.
Dividends
Dividends are recognized when the shareholders right to receive payment
is established by the balance sheet date.
M) Retirement and other Employee Benefits
i) Retirement benefit in the form of Provident Fund is a defined
contribution scheme and is charged to the Statement of Profit and Loss
of the year when the contributions to the respective fund is due. The
Company has no obligation other than the contribution payable to
respective fund.
ii) Gratuity liability is a defined benefit obligation and is provided
for on the basis of an actuarial valuation, as per projected unit
credit method made at the balance sheet date.
iii) Short term compensated absences are provided for based on
estimates. Long term compensated absences are provided for based on
actuarial valuation, as per projected unit credit method.
iv) Actuarial gains/losses are immediately taken to the Statement of
Profit and Loss and are not deferred.
N) Stock Compensation Expenses
Measurement and disclosure of the employee share-based payment plans is
done in accordance with SEBI (Employee Stock Option Scheme and Employee
Stock Purchase Scheme) Guidelines, 1999 and the Guidance Note on
Accounting for Employee Share - based Payments, issued by the Institute
of Chartered Accountants of India. The Company accounts for stock
compensation expenses based on the fair value of the options granted,
determined on the date of grant. Compensation cost is amortized over
the vesting period of the option on straight line basis. The accounting
value of the options outstanding net of the Deferred Compensation
Expenses is reflected as Employee Stock Options Outstanding.
O) Taxation
(i) Tax expense comprises of Current and Deferred Tax. Current income
tax is measured at the amount expected to be paid to the tax
authorities in accordance with the provisions of the Indian Income Tax
Act, 1961.
(ii) Deferred income taxes reflect the impact of current year timing
differences between taxable income and accounting income for the period
and reversal of timing differences of earlier years. Deferred tax is
measured using income tax rates enacted or substantively enacted at the
Balance Sheet date. Deferred tax assets are recognized only to the
extent that there is reasonable certainty that sufficient future
taxable income will be available against which such deferred tax assets
can be realized. In situations where the Company has unabsorbed
depreciation or carry forward losses, all deferred tax assets are
recognized only if there is virtual certainty supported by convincing
evidence that they can be realized against future taxable profits.
(iii) The carrying amounts of deferred tax assets are reviewed at each
balance sheet date. The Company writes-down the carrying amount of
deferred tax asset to the extent that it is no longer reasonable
certain or virtually certain, as the case may be, that sufficient
future taxable income will be available against which deferred tax
asset can be realized. Any such write-down is reversed to the extent
that it becomes reasonable certain or virtually certain, as the case
may be, that sufficient future taxable income will be available.
(iv) Minimum Alternative tax (MAT) credit is recognized as an asset
only when and to the extent there is convincing evidence that the
company will pay normal income tax during the specified period. In the
year in which the MAT credit becomes eligible to be recognized as an
asset in accordance with the recommendations contained in guidance note
issued by the Institute of Chartered Accountants of India, the said
asset is created by way of a credit to the Statement of Profit and Loss
and shown as MAT Credit Entitlement. The company reviews the same at
each balance sheet date and writes-down the carrying amount of MAT
Credit Entitlement to the extent there is no longer convincing evidence
to the effect that the company will pay normal income tax during the
specified period.
P) Segment Reporting
Identification of Segments
The Company has identified Iron & Steel products as its sole operating
segment and the same has been treated as primary segment. The
Company''s secondary geographical segments have been identified based on
the location of customers and then demarcated into Indian and overseas
revenue earnings.
Q) Leases
(i) Finance Lease
Assets acquired under finance leases, which effectively transfer to the
Company substantially all the risks and benefits incidental to the
ownership of the leased items, are capitalized at the lower of the fair
value and present value of the minimum lease payments after discounting
them at an interest rate implicit in the lease at the inception of the
lease term and disclosed as leased assets. Lease payments are
apportioned between the finance charges and reduction of the lease
liability so as to achieve a constant rate of interest on the remaining
balance of the liability. Finance charges are charged directly to
expenses account.
Leased assets capitalized are depreciated over the shorter of the
estimated useful life of the asset or the lease term.
(ii) Operating Lease
Leases where the less or effectively retains substantially all the
risks and rewards incidental to the ownership of the leased assets are
classified as operating leases. Operating lease payments are recognized
as an expense in the Statement of Profit and Loss on straight line
basis over the lease term.
R) Cash and Cash Equivalents
Cash and cash equivalents as indicated in cash flow statement comprise
cash at bank and in hand and short-term investments with an original
maturity of three months or less.
S) Impairment of Assets
The carrying amounts of assets are reviewed at each Balance Sheet date
to determine if there is any indication of impairment based on
external/internal factors. An impairment loss is recognized wherever
the carrying amount of an asset exceeds its recoverable amount which
represents the greater of the net selling price and value in use of the
respective assets. The estimated future cash flows considered for
determining the value in use, are discounted to their present value at
the pre tax discount rate that reflects current market assessments of
the time value of money and risks specific to the asset.
After impairment, depreciation is provided on the revised carrying
amount of the assets over its remaining useful life.
T) Derivative instruments
In accordance with the ICAI announcement, derivative contracts, other
than foreign currency forward contracts covered under Accounting
Standard 11, are marked to market on a portfolio basis, and the net
loss, if any, after considering the offsetting effect of gain on the
underlying hedged item, is charged to the Statement of Profit and Loss.
Net gain, if any, after considering the offsetting effect of loss on
the underlying hedged item, is ignored.
U) Provision
A provision is recognized when the company has a present obligation as
a result of past event, it is probable that an outflow of resources
embodying economic benefits will be required to settle the obligation
and a reliable estimate can be made of the amount of the obligation.
Provisions are not discounted to its present value and are determined
based on best estimate required to settle the obligation at the balance
sheet date. These are reviewed at each balance sheet date and adjusted
to reflect the current best estimates.
V) Contingent Liabilities
A contingent liability is a possible obligation that arises from past
events whose existence will be confirmed by the occurrence or non-
occurrence of one or more uncertain future events beyond the control of
the Company or a present obligation that is not recognized because it
is not probable that an outflow of resources will be required to settle
the obligation. The company does not recognize a contingent liability
but discloses its existence in the financial statements.
W) Measurement of EBITDA
As permitted by the Guidance Note on Revised Schedule VI to the
Companies Act, 1956, the Company has elected to present earnings before
interest, tax, depreciation and amortization (EBITDA) as a separate
line item on the face of the Statement of Profit and Loss. The Company
measures EBITDA on the basis of profit/ (loss) for the year excluding
depreciation & amortization expenses, finance cost and tax expenses.